Advanced Bond Portfolio Management: Best Practices in Modeling and Strategies

Preface ix

About the Editors xv

Contributing Authors xvii

PART ONE Background 1

CHAPTER 1 Overview of Fixed Income Portfolio Management 3
Frank J. Jones

CHAPTER 2 Liquidity, Trading, and Trading Costs 21
Leland E. Crabbe and Frank J. Fabozzi

CHAPTER 3 Portfolio Strategies for Outperforming a Benchmark 43
Bülent Baygün and Robert Tzucker

PART TWO Benchmark Selection and Risk Budgeting 63

CHAPTER 4 The Active Decisions in the Selection of Passive Management and Performance Bogeys 65
Chris P. Dialynas and Alfred Murata

CHAPTER 5 Liability-Based Benchmarks 97
Lev Dynkin, Jay Hyman, and Bruce D. Phelps

CHAPTER 6 Risk Budgeting for Fixed Income Portfolios 111
Frederick E. Dopfel

PART THREE Fixed Income Modeling

CHAPTER 7 Understanding the Building Blocks for OAS Models 131
Philip O. Obazee

CHAPTER 8 Fixed Income Risk Modeling 163
Ludovic Breger and Oren Cheyette

CHAPTER 9 Multifactor Risk Models and Their Applications 195
Lev Dynkin and Jay Hyman

PART FOUR Interest Rate Risk Management 247

CHAPTER 10 Measuring Plausibility of Hypothetical Interest Rate Shocks 249
Bennett W. Golub and Leo M. Tilman

CHAPTER 11 Hedging Interest Rate Risk with Term Structure Factor Models 267
Lionel Martellini, Philippe Priaulet, Frank J. Fabozzi, and Michael Luo

CHAPTER 12 Scenario Simulation Model for Fixed Income Portfolio Risk Management 291
Farshid Jamshidian and Yu Zhu

PART FIVE Credit Analysis and Credit Risk Management 311

CHAPTER 13 Valuing Corporate Credit: Quantitative Approaches versus Fundamental Analysis 313
Sivan Mahadevan, Young-Sup Lee, Viktor Hjort, David Schwartz, and Stephen Dulake

CHAPTER 14 An Introduction to Credit Risk Models 355
Donald R. van Deventer

CHAPTER 15 Credit Derivatives and Hedging Credit Risk 373
Donald R. van Deventer

CHAPTER 16 Implications of Merton Models for Corporate Bond Investors 389
Wesley Phoa

CHAPTER 17 Capturing the Credit Alpha 407
David Soronow

PART SIX International Bond Investing 419

CHAPTER 18 Global Bond Investing for the 21st Century 421
Lee R. Thomas

CHAPTER 19 Managing a Multicurrency Bond Portfolio 445
Srichander Ramaswamy and Robert Scott

CHAPTER 20 A Disciplined Approach to Emerging Markets Debt Investing 479
Maria Mednikov Loucks, John A. Penicook, Jr., and Uwe Schillhorn

INDEX 533